Economy at stake

The elections in the states of Delhi, Madhya Pradesh and Rajasthan are of immense importance to the economy. Much will depend not only on who wins, but on the margins by which seats are won. If, as opinion polls have predicted, the Congress wrests Delhi and Rajasthan from the BJP, and retains Madhya Pradesh, the countdown for the BJP at the centre is likely to begin, with coalition partners deciding to abandon a sinking ship. Whether that will result in a new coalition at the centre or fresh elections may be uncertain, since, in case the Congress does exceedingly well, it would be in their interest to capitalise on an anti-BJP wave and call for elections. Under this scenario, all decisions will be on hold. New investment will not be forthcoming, there will be uncertainty on the policy front and foreign investors too would wait and watch. The markets would mark time. Political energy will be directed solely towards keeping the coalition intact, while the bureaucracy shuffles files. Since the price rise will beblamed for an election debacle, there is a likelihood of a savage clampdown on money supply, on the lines of the credit crunch in 1995, but with the difference that while the credit squeeze in 1995 had the excuse of an overheated economy, the economy today is down in the dumps. Political uncertainty may also be used as the trigger for another attack on the rupee, and this would probably be justified by pointing to the worsening balance of payments position.

On the other hand, if the margin of victory is not all that wide, or if the BJP succeeds in winning Madhya Pradesh, it will be business as usual. If Madhya Pradesh is won, the BJP could blame the defeats in other states on the anti-incumbency factor. In this scenario, as in the alternative scenario of the BJP managing to hold its own, these positives could then allow the BJP a breathing space, enabling it to concentrate on the business of governing. That should mean a fillip for the reform process. The run-up to the state elections have seen a flurry ofactivity on the economic front, with several new policy announcements. Unfortunately, the trouble is that many of these announcements may not be translated into legislation. The need of the hour is undoubtedly for the two main parties to take a statesmanlike view and place the country's economic interests above partisan politics. There are signs of that happening on patents and insurance reform. But the state elections may derail that process.

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